European Automakers Back to Normalcy

Auto Tech Outlook | Wednesday, September 21, 2022

The industry has been battered by coronavirus lockdowns, worries about peace after Russia invaded Ukraine, and a chip shortage.

FREMONT, CA: The European automotive industry is preparing for normalcy just to witness customers slam and their wallets shut due to resurgent inflation, the likelihood of a recession, and an energy threat. The industry has been battered by coronavirus lockdowns, worries about peace after Russia invaded Ukraine, and a chip shortage. Additionally, there are worries that Russia's decision to restrict or cease gas shipments to Germany this winter may negatively affect the country's economic performance. Many individuals would put off thinking about buying a new car if the largest economy in Europe were compelled to implement energy rationing or even a shorter workweek.

Global consultants Fitch Solutions forecast a 9 per cent decline in automobile and SUV sales in Europe in 2022. LMC Automotive predicts a 6.3 per cent decline in Western European sales in 2022, an improvement from the 7.4 per cent decline predicted the month before. However, it appears weak compared to its early-year prediction that sales would increase by 8.6 per cent.

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The chip scarcity appears to be improving. In a recent analysis, Berenberg Bank of Hamburg predicted that the automobile industry's semiconductor shortages would likely improve by the end of 2022. The biggest car supplier in Europe, Bosch, predicted that global bottlenecks caused by a lack of auto chips would last through 2023.

In the opinion of investment bank UBS, the chip situation has begun to improve. The timing of this (improvement) coincides with a slowdown in the western auto markets and a decline in order intake, which has slowed production growth. While the existing order backlog is supporting second-half output, partners believe that the outlook for 2023 for a further volume recovery on the strength of stronger semiconductor supply has dramatically worsened.

UBS stated that it anticipates its previously announced projections for profit growth in the remaining months of this year to remain unchanged, despite having already lowered its forecast for 2023 and 2024 profits as the major automakers are about to release their financial results for the first half of 2022.

Earnings per share projections for all major manufacturers were decreased by up to 30 per cent to account for reducing demand, which was driven by affordability. Higher energy costs in Europe and the possibility of gas rationing suggest significant negative earnings growth for 2023. Despite hints of easing raw material costs, investment analyst Jefferies said it had reduced profit forecasts for significant manufacturers for 2023 by five to 15 per cent due to increasing energy and labour costs. Production is anticipated to rise during the second half of this year, according to investment analyst Bernstein, that has maintained his profit growth projections.

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